Many analysts suggest the financial crisis in the United States began in September of 2008, and since then there have been more than 3.2 million homes foreclosed on, with Illinois having one of the highest rates in the country at 5.4 percent.
Investors looking to take their cash out of a low-interest savings account and purchase income property could potentially come out ahead with a foreclosed property. They can be very lucrative investment, but buying foreclosed homes is not for everyone!
Many foreclosures have been abandoned by the previous owners and could have major damage to them. Bear in mind that these properties have been vacant for weeks, months and even years, and major issues can occur over that time period. The HVAC system may be in disrepair, the pipes may be leaking without any visible signs, and sometimes even more serious problems can develop.
To make matters worse, a previous owner will “strip” the home before walking away from it, taking appliances, countertops, flooring, cabinetry and yes, even the kitchen sink. I was on one showing where we walked into a home only to find that all that was left were the studs and drywall: no light or plumbing fixtures, no HVAC system, and obvious signs of mold.
And then there’s the matter of financing.
The bad news is that many lenders won’t finance homes in that condition, and lenders who will often require additional addendums, disclosures and hold-harmless agreements. The good news is that lenders will price the property well below market value based upon the report given by the inspector that reviewed the property on the bank’s behalf.
Just make sure your Realtor and attorney are familiar with foreclosures, and can help you avoid the many pitfalls.
Your Realtor can review the additional documents sent from the lender, for example, and your attorney needs to secure a free-and-clear title of any liens that may encumber your new home.
In addition, there are some typical sellers expenses that foreclosed lenders can refuse to pay for. These items could include a survey, transfer stamps, title expenses and tax prorations.
There are many additional details that you must gain knowledge of before jumping into purchasing a foreclosed property, and a knowledgeable Realtor can advise you on those details before you purchase.